Bone formation in mammals requires continuous production of osteoblasts throughout life. A common molecular marker for all osteogenic mesenchymal progenitors has not been identified. Here, by lineage-tracing experiments in fetal or postnatal mice, we discover that Gli1+ cells progressively produce osteoblasts in all skeletal sites. Most notably, in postnatal growing mice, the Gli1+ cells residing immediately beneath the growth plate, termed here “metaphyseal mesenchymal progenitors” (MMPs), are essential for cancellous bone formation.